I’m the Washington D.C. bureau chief for Forbes and have worked in the bureau for more than two decades. I've spent much of that time reporting about taxes -- tax policy, tax planning, tax shelters and tax evasion. These days, I also edit the personal finance coverage in Forbes magazine and coordinate outside tax, retirement and personal finance contributors to Forbes.com. You can email me at jnovack@forbes.com and follow me on Twitter @janetnovack.

Over the course of a year, the Internal Revenue Service processed and paid out $12.1 million in fraudulent tax refund claims submitted using the stolen names and Social Security numbers of 5,108 dead people. Incredibly, the claims were all processed under the “Electronic Filing Identification Number” assigned to just one tax preparer, without, apparently, being blocked by any of the computerized screening programs used by the IRS to catch refund fraud.

That surprising disclosure is contained in a “Complaint for Forfeiture” lawsuit the government filed late last month in the Southern District of Florida. The suit seeks to keep $851,832 federal agents seized in March from ten Bank of America accounts and $760,035 they seized from three JP Morgan Chase Bank accounts— all the cash allegedly proceeds of the post-mortem identity theft scam.

The phony refund claims, all for calendar year 2009, were filed in the names of people who had died in 2009 or 2010. The fraud may well have been facilitated by the fact that the Social Security Death Index—a database of all deaths reported to the Social Security Administration since 1962 —is publicly available on the web through such sites as Ancestry.com and geneaologybank.com. A fraudster can, for example, search for the names of everyone who died in certain months and then access information for each individual, including his or her Social Security number, birth date, death date, and the zip code for the individual’s last known residence.

According to the government’s complaint, the tax preparer Electronic Filing Identification Number used in the massive scam was assigned to a Florida man who told federal agents he was paid $1,000 to apply for it, but never prepared any returns or used the number. Some of the refunds were sent to an account at BankAtlantic opened by a different Florida man. Federal agents have traced proceeds of the dead taxpayer refund scam to 303 accounts spread over nine different banks, the complaint says. It is unclear from public filings just how much of the $12.1 million the government has recovered, but apparently the largest recovered chunks were in the Bank of America and JP Morgan Chase accounts.

So far, there have been no criminal charges brought in the case. The Assistant U.S. Attorney who filed the forfeiture case declined to comment on the status of any criminal investigation or other aspects of the case.

The Social Security Administration sends weekly death report updates to the IRS. So why would the IRS pay any refunds at all to dead people? A spokeswoman for the IRS, citing taxpayer privacy laws, declined to comment on any aspects of this case, but noted that a 1040 for the year of or before a taxpayer’s death is often due and filed by a surviving spouse or an estate. That raises the possibility that surviving relatives of the dead identity theft victims may have encountered difficulties when filing last returns for their loved ones; if the identity thief filed a 1040 under the Social Security number first, the second, legitimate refund claim would typically be frozen while the IRS investigated.

In a formal statement e-mailed to Forbes, the IRS said it has made preventing identity theft a top priority, but is still “seeing an increase in identity theft cases, including more complex and sophisticated schemes.”

Here’s the full IRS statement:

“Preventing identity theft is a top priority at the IRS, and we have committed significant resources to addressing and resolving cases of taxpayer identity theft. The IRS understands that identity theft issues can be very frustrating and complicated for people. Tax-related identity theft cases can be extremely complex, and the IRS is committed to working with taxpayers who have become victims.

The IRS processes more than 142 million tax returns every year, and issues over 109 million refunds totaling over $328 billion and has a robust screening process with measures in place to stop fraudulent returns Unfortunately we are seeing an increase in identity theft cases, including more complex and sophisticated schemes. Just this year alone, the IRS has stopped nearly 117,000 identity theft returns and protected more than $582 million from getting into the wrong hands. The IRS not only stops the vast majority of fraudulent refund claims, but also investigates and works with the Department of Justice to criminally prosecute ID theft cases against scam artists.”

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Fascinating. I stumbled across the SSDI for the first time last year and was a bit surprised that I could pull up my great grandmother’s social with her name alone. Do you know if there’s ever been a push to reform that to try to deter identity theft?

Not that I know of. The Social Security Administration doesn’t put it on line. Instead, it sells the tape to others who do. The computerized list has been around since 1962 and the policies about reselling it seem to predate the Internet.

As a CPA who has had two clients subject to fraudulently efiled tax returns this tax season alone, it’s not clear to me that the IRS is doing all it can for taxpayers. It’s pretty easy for the bad guys to steal IDs from the comfort of their own home. It’s an amazingly low risk crime with quick rewards. The IRS needs to step up its efforts – FAST!!